The selloff yesterday was across the board for hard rock lithium...

The selloff yesterday was across the board for hard rock lithium play's and today's opening seems to be continuing that.

A11 will ultimately own either 45% or 42.5% of the project depending on what happens with the Ghanaian sovereign wealth fund. That means the current market cap of A$391m (64.5c) broadly values the project at its current stage of progression at just under A$1.0 billion. If a higher risk, pre-startup 15% return is allowed for across 2023 and 2024, the project needs to be worth around A$1.3b as it comes into production in 2025. Getting down to this value is challenging if you believe the project will progress through to production. This continues to make the share price look seriously cheap.

The Scoping study had a NPV of US$1,328 inclusive of deducting $125m for capex. If the capex is paid and the scoping study revenues/expenses become the valuation then a project value would be around US$1,453 should apply in a couple of years. This would put the share price around double current levels. This in itself also applies the following assumptions:

• Existing completed drilling does not extend the life of mine and does not increase production volumes (both these would increase the scoping study NPV)
• Spod prices have fallen to a year 1 spod price is $2,300/t and continue falling to $1,800/t in year two . Year three is $1,400/t and modest further falls to a stable state price of $1,200/t
• No Initiatives are found to improve recoveries beyond 63%
• Fines continue to be DSO shipped rather than further processed and only receive $85/t (ref CXO's tender as a current price guide for fines)
• Either no further exploration occurs, or if it does, there is no impact on reserves (i.e. it's unsuccessful)

More additional conservative/negative assumptions are needed to get the scoping valuation down to the current price of $0.645. There is obviously a chance that the project doesn't progress but that seems a low probability. Its got great economics so the residual small funding cap will be filled. Ghana needs the tax/royalty revenues and there appears to be strong community support.

Its possible to plug in Spod prices that are even lower, but what is the current justification for prices that low. Current supply/demand evidence would point towards spod prices above not below those used in the scoping study. Overall A11 looks cheap but that won't stop the market pricing it even more cheaply (at least temporarily).